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Friday, January 11, 2013

Housing

According to the news, the majority of analysts seem to think that housing has bottomed out. So, I downloaded the Case-Shiller index data here, and made a neat little graph.

It kind of looks like it might have bottomed... oh, wait. If you can look at the index further back (like here) you'll be able to see that the index generally tends to revert back to whatever its normal level is. After World War II, that level does seem to have risen, but as someone pointed out in the comments on the page, houses have gotten bigger... well, there could be a number of explanations for that. The point is, there doesn't really seem to be a reason for there to be a new, higher, "normal" price for homes, as this chart seems to indicate.

The flattening out from 2009 on in this chart is simple to explain: the Fed has kept mortgage rates exceedingly low, and the federal government has instituted tax credits for buying homes. These things have certainly put a floor on home prices (much like the floor our government puts on milk prices), but I would hardly call this any sort of bottoming out.

The big question in all this to me is whether the government will continue to support home prices long enough for people to forget what a "normal" home price is, and make this the new normal. Or, will they just keep on manipulating the home prices upward until it's 2006 or so, all over again.

Disclaimer

I am not a registered investment advisor or broker. Blog posts are my own opinion, derived in good faith from public information believed to be accurate at the time of posting. No warranty is made regarding the accuracy or completeness of information contained herein. Market Dissection posts are provided for informational purposes only. Before you invest in any security, you should conduct your own research and due diligence, and seek the advice of a qualified investment professional.